Should A Reaffirmation Plan Be Signed?

A reaffirmation agreement revives and consolidates a debt back into life that could have been discharged in a Chapter 7 bankruptcy. Mostly such agreements are often made to protect a house or vehicle. In a Chapter 7 proceedings, a debtor is forfeiting bankruptcy protection in exchange for the creditor promising not to repossess the property.It seems straightforward and simple at this stage. You continue to make payments, if you want to keep using the property. A client gets to keep his property and possibly rework the terms of the new contract to make repayment more affordable. What’s so strange here?

Here is what I recommend my clients about reaffirmation agreements:

The problem is once you sign, you are in a hornets nest. One can no longer free to surrender the property without being personally liable. Anytime, you miss a payments, your creditors would come back and haunt you. Again, why to reaffirm the same terms and conditions. Why not to negotiate the terms and ask the creditors to cut down the principal and cut the monthly income in exchange for reaffirmation. Again, you have to decide if you are a good candidate for repayment and a reaffirmation would help you and not eradicating the benefits of your chapter 7 liquidation bankruptcy. An attorney must be careful that he is not enhancing your financial liabilities and that you would be continuously able to make your payments. The court, however, can still reject the reaffirmation plan, if you reaffirm it. Courts has to see and check it independently.

The rule of caution is that one should never sign the agreement unless debtor have restructured the terms to be decidedly in your favor. In other words, try to cut the principal and interest, or stretch out the payment length. Again, one can also revoke the agreement within 60 days if they change your mind.

You have leverage. Use it to the best advantage. Most creditors do not want your property and do not want to take the legal steps necessary to take it back and sell it. If you really want to keep the property, in most cases, the creditor is satisfied with you voluntarily making the monthly payment according to the terms of the discharged debt, without requiring a reaffirmation agreement.

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